* Central bank leaves rates at 4.5 percent
* Central bank warns may hike rates in future
* Inflation jumps to more than two-year high
By Krista Hughes and Simon Gardner
MEXICO CITY, Sept 7 (Reuters) - Mexico's central bank left
interest rates on hold on Friday but signaled it may tighten
monetary policy in the future after inflation jumped to its
highest in almost 2-1/2-years on the back of high food prices.
The Banco de Mexico kept benchmark credit costs at 4.5
percent, as expected, but said it was watching inflation closely
to make sure that high food prices, a weak peso and loose policy
in advanced economies did not pressure local prices.
"In the future, the board will remain alert to the evolution
of all determinants of inflation, given that their behavior
could make it advisable to adjust the reference rate upwards,"
the central bank said in a statement.
After its last meeting in July, the central bank had given
an equal chance to cutting rates as it did to raising them and
the change in tone prompted some investors to price in a rate
hike, but only in 2014.
The peso, which was buoyed on Friday by the possibility of
the Federal Reserve pumping more money into the U.S. economy,
was little moved by the central bank's statement.
Economists were unconvinced that the bank was seriously
considering a rate increase, and said the statement reflected
differences of opinion on the five-member board.
"What they are saying is looking at all this they see it's
more probable that they're going to hike than cut," said Alberto
Ramos from Goldman Sachs. "However when you look at the balance
of risks that could lead to a hike, I think it's not there."
Data earlier on Friday showed annual inflation through the
end of August accelerated to 4.57 percent, the fastest rate
since March 2010 and well above the central bank's 4 percent
ceiling.
The Mexican central bank, the Banco de Mexico, has held
benchmark rates at 4.5 percent since mid-2009 as the economy
recovered from a deep recession, and a hike would put it in
sharp contrast to counterparts in Colombia and Brazil, which has
slashed official interest rates to record lows and may have one
more cut to go.
However, David Rees of Capital Economics said that headwinds
for the Mexican economy would likely increase and that there was
little chance of the central bank raising interest rates.
"Instead, we think that rates are likely to remain on hold
for the foreseeable future, with a strong possibility of cuts
next year as the economy slows," he wrote in a research note.
Mexico's fortunes are closely tied to the United States, and
positive recent data north of the border fanned hopes Mexico can
withstand shakiness in the global economy, which has been hit by
worries about Europe.
So far, resilient domestic demand has not fanned price
pressures, although inflation has now overshot 4 percent for
three straight months after bad weather and an outbreak of avian
flu drove up food prices.
INFLATION JUMP
Policymakers said risks to growth had continued to worsen
due to global economic woes. They expected inflation to remain
above 4 percent in coming months, but said risks were easing in
the medium term.
The headline annual inflation rate exceeded analysts'
expectations for an increase to 4.52 percent. Consumer prices
rose 0.30 percent in August compared with a Reuters
poll estimate of 0.27 percent, but eased from July.
Egg prices rose 11 per cent in the month and annual
inflation in agricultural prices overall accelerated slightly to
11.76 percent. The central bank said it expected the impact from
food prices to be transitory.
Core inflation, which strips out some volatile
food and energy prices, rose 0.22 percent, in line with
expectations and also lower than July. On an annual basis, core
inflation was 3.70 percent - suggesting home-grown price
pressures are relatively contained.
Still, the central bank said the weak peso was pushing up
inflation by making some imported goods more expensive. Non-food
core goods inflation, the most sensitive to currency
fluctuations, accelerated to 4.01 percent in the 12 months
through August, from 3.6 percent in July.
The peso has recovered about 10 percent from a
three-year low hit in early June to trade at just under 13 per
dollar on Friday. Having earlier traded as low as 12.9413
against the dollar, the peso was back at around 12.99 by 1515
GMT.
Inflation last exceeded the central bank's tolerance limit
for three straight months in late 2010. The central bank aims
for inflation of 3 percent, plus or minus 1 percentage point.
Still, new measures designed to combat the spike, such as
temporarily dropping tariffs on imported eggs, should begin to
slow the inflation rate soon, analysts said.